4 Ways COVID-19 Will Change Cannabis and Insurance


One may not need to be able to read the cannabis leaves to divine the impact of the COVID-19 pandemic on cannabis and insurance.

Some good guesses from any insurance professional with their foot in the door of a dispensary, farm, lab, or distribution facility, might go along the lines of: Vaping will be tougher to insure, reinsurance will be harder to find, expect even more exclusions in policies, greater capacity.

The impact of the virus on the cannabis industry, like many other industries, is most notably lagging sales and sluggish business activity.

A brief run on cannabis by hoarders precipitated a big downturn at dispensaries.

Recreational marijuana sales in four big markets slowed in March as the impact of the virus continues to disrupt both the cannabis industry and the broader U.S. economy, according to an article this week in Marijuana Business Daily.

The article, which uses data from the research firm Headset, shows that recreational cannabis sales in Colorado and Nevada declined from March 2019 to March 2020, while sales in California and Washington rose but at a slower rate.

Beyond that sales impact, cannabis may have gotten a reputational boost when numerous states declared it an essential business that could remain open, potentially changing the insurance landscape for the industry by putting insurers on notice that while marijuana may still be considered illegal in the eyes of the federal government, most states consider it to be not only legitimate but important.

This point was echoed by more than one of the four experts sought out by Insurance Journal to tell us how the crisis will impact the industry.

Following are the four ways each believe the COVID-19 crisis will change insurance and cannabis.

Ian Stewart, a partner in Wilson Elser Moskowitz Edelman & Dicker LLP

  1. Cannabis as an essential service.
Ian Stewart

The COVID-19 pandemic has laid bare the absurd incongruity of cannabis being both federally illegal and deemed an essential service by numerous states. Access to cannabis used for medical purposes varies greatly state to state. In medical cannabis states, registered medical cannabis patients have little or no choice but to obtain their medicine through licensed dispensaries. In adult-use states such as California and Colorado, many who use cannabis for medical purposes obtain it through adult-use retail stores and delivery services.

Regardless of the distribution model, the message has been heard and cannabis has been included as an essential service at some level in the following states: California, Colorado, Connecticut, Illinois, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oregon, Pennsylvania and Washington. This bodes well for the long-term sustainability of the industry.

  1. Delays with cannabis legalization efforts.

COVID-19 has largely derailed legalization efforts across numerous states and federally. States like New York, Connecticut, New Hampshire and Vermont have been forced to shift their priorities and delay adult use legislation. Voter initiatives and legislative efforts in several medical states are also in jeopardy, including in Arkansas, Nebraska, Missouri and Oklahoma. Federally, any cannabis-related legislation such as SAFE Banking is DOA on Capitol Hill until well after the election.

  1. Delays with new cannabis insurance products.

These disruptions have also found their way into the cannabis insurance market. Carriers and MGU’s are waiting and watching before rolling out new insurance products, particularly with respect to specialty lines. The cannabis reinsurance market, which was already tightening before the pandemic, continues to contract.

  1. The big squeeze is on.

Disruptions from COVID-19 may be felt first and most urgently by smaller licensed operators in unlimited license states like California and Oregon, as opposed to larger and better capitalized operators in limited license states like Florida and New York. To properly plan for COVID-19 fallout, cannabis insurers should be aware of the significant differences in competitive market forces between limited and unlimited license states.

Many cannabis insureds of all sizes may not survive, however. The cannabis industry was facing a downturn in available financing from the capital markets before the pandemic, and coronavirus assistance through the CARES Act and other federal programs is not available to the cannabis industry. Business interruption coverage was not widely available to, or purchased by, most cannabis companies.

Matt Porter, vice president at Brown & Brown Insurance Services of California Inc.

  1. Vaping/product liability will become more stringent as a result of COVID.
Matt Porter

Vape pen manufacturers were already in a tight spot with the most recent vape scares, especially those manufacturers who were sourcing products from overseas. With this most recent virus coming out of China, I would expect that underwriters are going to be even more hesitant and stringent to extend coverage to these manufacturers who are sourcing components of their pens from China and the large production facilities there.

  1. There will be more exclusions to product liability for all operations, further than just the vape pen manufacturers.

Given the outbreak of this virus I wouldn’t be surprised if product liability carriers will attempt to limit their exposure further. We already saw previously existing health conditions being a hurdle and major exclusion on current policies. I would expect that with the COVID implications and how underlying health issues are contributing to the death rate, the underwriters will most likely look to increase the exclusions to reduce their responsibility to pay claims from contributing health issues like asthma and breathing issues.

  1. Reinsurance.

Right now, I don’t necessarily think the reinsurance market is going to be hit due to COVID since the industry is holding pretty firm that these pandemics are not a covered cause of loss. We have seen attempted litigation and governmental response trying to force insurers to pay income loss claims as a result of COVID 19. If the vast majority of these claims are paid, we would be looking at multi-billion dollar loss amounts, and if these begin to get paid, the reinsurance market is going to be hit extremely hard.

  1. Capacity could open up.

The cannabis space has been deemed essential, so we are seeing larger revenues and payroll projections, which could incentivize more carriers to enter the space

John L. Balian, director of the cannabis industry practice for Wood Guttman & Bogart Insurance Brokers

  1. Vaping will be tougher to insure.
John L. Balian

Vaping will continue to be tough in general – COVID-19 will just add another level of complexity to the overall risk profile for accounts with this type of exposure at the underwriting level.

  1. More exclusions to add to the numerous exclusions cannabis businesses have in their policies.

Carriers and reinsurers will likely look to make sure that COVID-19 is addressed – by name – in policy forms in the future. It likely will be along the lines of additional exclusions akin to other common policy exclusions like asbestos.

  1. Reinsurance will be harder to find.

Reinsurers will have to entertain the potential business impact of COVID-19 on their standard business, so opting “in” to participating in new niche markets may get pushed to the backburner.

  1. The business will actually have more capacity.

Due to recent media publications showcasing cannabis as being “essential” and the increased (short-term) sales boom, net new capacity might entertain this as being the right time to jump in.

Alyson D. Jaen, with Fortis Law Partners

  1. Vaping will be tougher to insure.
Alyson Jaen

More insurance companies may be hesitant to insure vaping products, especially with the vaping crisis that emerged in 2019 and the ongoing COVID-19 pandemic. Because the ongoing COVID-19 pandemic is a respiratory illness, insurance companies may be more cautious to provide insurance on products that exacerbate respiratory illnesses.

In addition, insurance companies may point to the increase in litigation due to lung-related injuries during the vaping crisis as a reason to limit insuring vaping products during the COVID-19 crisis.

  1. More exclusions to add to the numerous exclusions cannabis businesses have in their policies.

Cannabis businesses already face a plethora of exclusions to their insurance policies. For instance, many standard commercial general liability policies contain exclusions for Schedule 1 substances.

Insurance companies may use the COVID-19 pandemic as a reason to add more exclusions to their policies, especially for cannabis businesses that specialize in vaping and/or other smokable cannabis products.

  1. Reinsurance will be harder to find.

Unfortunately, obtaining quality insurance as a cannabis business has always been a bit problematic, and finding insurance companies who will back marijuana-related books, at times, has been a difficult task. At a time when so many businesses are filing insurance claims, cannabis businesses may find that insurance companies are not willing to reinsure cannabis policies because it is deemed too risky to do at this time.

  1. The business will actually have more capacity.

Several states have reported an increase in sales and demand for cannabis products since the COVID-19 outbreak began. Annual and monthly insurance premiums run much higher for cannabis businesses than for other businesses.

Because of this, now could be a good time for insurance companies to reach out and work with cannabis businesses while sales are up and the businesses are running at higher profit margins.

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